Draft recommendations from the National Commission on Fiscal Responsibility and ReformNovember 10, 2010 12:11 PMSubscribe

In a surprise move, the co-chairs of the National Commission on Fiscal Responsibility and Reform, former Clinton Chief of Staff Erskine Bowles and former Senator Majority Whip Alan Simpson (R-WY), held a press conference today - three weeks in advance of the due date for the Commission's final report - to announce their draft recommendations on how to reduce the federal budget deficit.

Issuance of the final report will require agreement of 14 of the Commission's 18 members. Some of their initial reactions:

“This is not a package that I could support,” Representative Jan Schakowsky, an Illinois Democrat, said during a break in a private meeting by the commission. She said any package able to win 14 votes on the panel would have to look “very different” from the options being discussed.

Senator Dick Durbin, an Illinois Democrat, called the plan a “starting point for the conversation.”

“We’re not going to have an up-or-down vote on this,” said Durbin. “There are proposals in there that are painful. I told them I said there are things in here which inspire me and other things which I hate like the devil hates holy water. I’m not going to vote for those things.”

Some Republicans also expressed skepticism that the report would survive in its current form. New Hampshire Senator Judd Gregg called the plan a “starting point.” Representative Jeb Hensarling of Texas said “some of it I like, some of it disturbs me.”

The National Commission on Fiscal Responsibility and Reform is a commission created in 2010 by President Barack Obama to identify "...policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run."[1] The commission first met on April 27, 2010.[2]

History

The original proposal for a commission came from bipartisan legislation that would have required Congress to vote on its recommendations as presented, without any amendment. In January of 2010, that bill failed in the Senate by a vote of 53-46, when six Republicans who had co-sponsored it nevertheless voted against it.[3] Thereafter, Obama established the Commission by executive order 13531.[4] Former Republican Senator Alan Simpson, after his appointment to co-chair the Commission, criticized the former supporters who had voted against the bill, saying that their purpose "was to stick it to the president."[5]

Here's the NY Times take on it. I must confess I don't understand how eliminating the mortgage interest deduction but dropping the top tax bracket from 35% to 23% will result in a net gain in revenue of $80 billion per year. Do the wealthy really pay that much in mortgage interest?

Also, what does the proposal say about capital gains and the inheritance tax and the methods used to avoid paying it? We're not going to get very far trying to squeeze more blood from the middle class turnip. Revenue-oriented reform has to start at the upper classes, since that's where the money is.

Cutting the corporate income tax rate (35% to 26%) also seems silly when so many large companies are effectively paying no US income tax at all. It's not like those companies are going to decide "well, we could pay nothing, but on the other hand 26% seems like a fair deal, so we'll voluntarily stop exploiting tax loopholes."

I agree that the tax code needs to be simplified, and that should definitely be a part of any reform, but I'm kind of surprised that the numbers work out.posted by jedicus at 12:26 PM on November 10, 2010 [5 favorites]

In their first plan, called "The Zero Plan," they suggest reducing the tax brackets to three personal brackets and one corporate rate while eliminated all credits and deductions. Without any credits or deductions (including the ETIC and mortgage interest deductions), the 3 tax rates would be 8, 14 and 23 percent.

Yes! I'd save $500 a year on accountants' fees!

Reduce military forces in Europe and Asia by one-third.

I can't tell you how much I want this to happen. The other stuff too, but especially this. I am happy that this commission seems to be recommending some real cuts in the Dept. of Defense.posted by Mister_A at 12:26 PM on November 10, 2010 [2 favorites]

three weeks in advance of the due date for the Commission's final report

Well, after so transparently sitting on this until the elections were over, you could hardly expect them to restrain themselves much longer.

Also, it gave me a great deal of pleasure this election season to rip out the signs Schakowsky's idiot teabagger opponent planted illegally in the public verge in front of my building. Not as much pleasure as watching him lose by 35 points, though. My congresswoman is awesome.posted by enn at 12:27 PM on November 10, 2010 [3 favorites]

Index Social Security yearly increases to inflation rather than wages, which will generally mean lower cost of living increases and less money per average recipient.

Translation: retirement living will stay stagnate instead of improving. The last raise you ever got, will be the last raise you will ever get.
This, however, is not a horrible thing. The problem is that with the desired cuts to Medicare, this is a major problem.

The co-chairs suggest raising the ceiling to capture 90% of wages.

Good, but I'd like to see it pegged to 100%, and those making over $106k limit right now put in more than the rest of us.

Capping government expenditures and revenue at 21% of GDP

This would be nice, but what is it right now?

The two tax items will never pass; the IRS and companies like HRBlock will fit this tooth and nail.

Limiting taxes to those made within the country is a Bad Idea (tm). This will just encourage companies to move more overseas than they currently do.

And of course, the Screw You to Medicare users. Fuck poor people.

Eliminate NASA funding for commercial space flight

Which will last until the first commercial manned rocket blows up, or worse, hits a city/town.

Eliminate subsidized student loans, in which the government makes interest payments while the student is in school.

Fuck education, what did higher learning ever do for poor people?

Eliminate funding to the Corporation for Public Broadcasting -- which many conservatives suggested in the wake of the firing of former NPR contributor Juan Williams.

As expected. Any Democrat that signs onto this bill with this in there is going to get themselves tossed by their own party.

Reduce farm subsidies by $3 billion per year.

Not enough, and should be carefully looked at, and eliminated altogether. A lot of the subsidies are given to "not grow stuff" which is dumb.

End "low-priority" Army Corps of Engineers programs to the tune of $1 billion by 2015

Yes, like water and levee projects. Ignore Engineers, they is all stupid and shit.

Cut $900 million in fossil fuel research funds.

This is ambiguous: does this mean research in how to better use what little we have left, or possible fuel replacements, or what?

Force airlines to increase their contributions to airline security costs and allow them to increase per-ticket security fees.

Also know as paying for more theater works. You pay for your groping, ma'am.

Eliminate the V-22 Osprey program.

I thought it already was!

Reduce military forces in Europe and Asia by one-third.

Good idea.

Send all military children based in the U.S. to local schools

On the surface, ok, but since military families usually (mine did) move around a lot, this might be an issue.

There are some reasonable ideas here, but a lot of "fuck you people" stuff that I hope never goes anywhere.posted by Old'n'Busted at 12:27 PM on November 10, 2010 [11 favorites]

Do the wealthy really pay that much in mortgage interest?

Nope, they already own their houses. I pay that much in mortgage interest, know what I mean? This is, without a doubt, a tax increase for people like me, but I support it anyway because it is fair and makes sense. Getting wealthy/high-income people to actually pay their taxes is also a good thing. My question is this: does this proposed new tax structure take the position that "income is income" or will capital gains continue to be taxed at a ludicrously low rate?posted by Mister_A at 12:30 PM on November 10, 2010 [1 favorite]

Increase the Social Security contribution ceiling: great!

Reduce [defense] procurement by 15 percent: awesome!

Require the Smithsonian museums to start charging entrance fees and raise fees at the national parks: oh come on.

The third plan would force Congress to undertake comprehensive tax reform by 2012 by raising taxes for each year Congress fails to act: given this incoming Congress, let's call that one a "not sure if want."

All their proposals limit Congress to collecting taxes on income made within the United States, reducing or eliminating taxes on ... revenues companies earn abroad: WHAT.posted by penduluum at 12:30 PM on November 10, 2010 [1 favorite]

Anyway, the cool thing about this is that it deliberately stakes out some extreme positions. That's how you negotiate - ask for more than you expect to get and you may get what you need. Start out asking for exactly the bare minimum workable concessions and you'll get way less than you need. We shall see where we net out on this. It will be interesting to see how the new congress responds to this next year.posted by Mister_A at 12:33 PM on November 10, 2010

All their proposals limit Congress to collecting taxes on income made within the United States, reducing or eliminating taxes on ... revenues companies earn abroad

Why do I have a feeling this "no taxes if you shut down US operations and move everything offshore" provision is going to be the one that makes it through Congress.posted by enn at 12:34 PM on November 10, 2010 [16 favorites]

What is the surprise move? The major portions of their proposals were entirely expected. Here's a post from Krugman back in January that pretty much hit the nail on the head. Just by getting on board with the idea of a commission, Democrats were playing right into the starve-the-beast crowd's hand. Surely nobody expected them to come back saying, "Raise taxes on the rich and improve economic prospects for the lower and middle classes"?

Maybe you just meant that holding a press conference was a surprise move.posted by dsword at 12:39 PM on November 10, 2010 [3 favorites]

It will be interesting to see how the new congress responds to this next year.

"President Obama's and the Democrats wants to cut Social Security and slash the military budget when we're at war!"

... this extremely hasty press conference shows how thin the support actually is for Bowles and Simpson’s fever dreams. Unable to get what they want in secret, they had to go public to hopefully get enough backing to put pressure on the commission members.posted by Joe Beese at 12:44 PM on November 10, 2010 [2 favorites]

This is as likely to happen as my equally well-researched report on reducing the federal deficit, consisting of "RAISE TAXES AND STOP HAVING WARS, YOU MORONS" scrawled on a napkin. The difference is I would have needed to be paid far less than these people were, and I would have wasted significantly less of your time.posted by XQUZYPHYR at 12:49 PM on November 10, 2010 [19 favorites]

Imperfect, but overall awesomely good. I am surprised, impressed, and think most of the knee-jerk critiques here so far just demonstrate an unwillingness to read it carefully. As a liberal, I'm very happy indeed with what I see so far. Most of the wailing and gnashing of teeth will be coming from the political fringes; if I were Obama I'd want to pass as much of this as possible right now, and then spend the next 6 years tuning it before retiring as a national hero.posted by anigbrowl at 12:51 PM on November 10, 2010 [1 favorite]

A lot of the subsidies are given to "not grow stuff" which is dumb.

How can I object to that well-reasoned argument? No, seriously, tell me why. And please don't hand me libertarian talking points, thanks.posted by raysmj at 12:52 PM on November 10, 2010

Halve the number of F-35 Joint Strike Fighters in favor of F-16s and F/A-18Es.

I would like to see the F-35s themselves chopped in half with giant welding torches.posted by swift at 12:53 PM on November 10, 2010 [5 favorites]

Looks really thin on Medicare. Which is going to be the big problem. I'm actually kind of shocked by how thin it is on Medicare.posted by mr_roboto at 12:56 PM on November 10, 2010 [1 favorite]

I thought the budget balancing tool was stunningly easy, and it didn't even give me the option that I most wanted to see, namely "cut the HELL out of the military budget" as opposed to what it gave me, which was "cut a tiny itty bitty slice out of the military budget, and oh yeah pull troops from our ongoing wars".posted by norm at 1:09 PM on November 10, 2010 [5 favorites]

Are you seriously asking why farm subsidies in the US need to go away? Let me give you a few (not particularly libertarian) reasons:

First, we give huge amounts of subsidies (billions every year) for crops that actively harm us. Tobacco and corn being two of the biggest examples. The corn is primarily used to make corn syrup and animal feed. The corn syrup makes unhealthy processed food artificially cheap, and the animal feed makes it artificially cheap to keep animals in CAFOs, which is bad for the animals, and it makes meat artificially cheap, which is bad for people. Feeding corn to cows also causes a lot of health problems for the cows.

Second, the subsidies are extremely market-distorting, making it difficult for farmers in other, poorer countries to compete with the US on a level playing field.

Third, by targeting certain crops for the majority of the subsidy, it promotes monoculture, which increases our vulnerability to crop diseases and pests, and thus our dependence on herbicides and pesticides. It also leads to a less healthy and less diverse diet.

Fourth, by subsidizing production rather than sale, it promotes and cheapens processed food rather than whole fruits and vegetables. If we're going to subsidize food it should be the sale of healthy fruits and vegetables at the grocery store, not the growth of cereal crops.

Fifth, a large amount of the money goes to agribusiness companies that shouldn't be receiving any help. Things like crop insurance subsidies make sense when a flash flood or cold snap can ruin a small farmer's whole crop. It makes no sense at all when talking about a giant agricultural company that grows many different crops in geographically diverse places.

Sixth, by artificially cheapening production, it encourages farmers to grow water-intensive crops in places where they should not be grown, leading to water shortages and water table depletion.

Seventh, the vast majority of our food aid is purchased in the US and shipped overseas, essentially a farm subsidy in disguise. This is not only seriously inefficient, but it also tends to destroy the local agricultural economy. US food aid in Afghanistan ruined the local market for wheat, which led many Afghan farmers to switch to growing opium. Since opium can't be sold legally, that in turn put a lot of money and power into the hands of criminals and warlords.posted by jedicus at 1:14 PM on November 10, 2010 [117 favorites]

Do the wealthy really pay that much in mortgage interest?

No, but eliminating the mortgage interest deduction affects taxpayers at all levels of income, while dropping the top bracket only affects a couple of percentage points of taxpayers. You're raising everyone's taxes by a little and cutting a very, very few people's taxes by a lot. The net is in the black.posted by valkyryn at 1:14 PM on November 10, 2010

... they’re talking about raising the retirement age, because people live longer — except that the people who really depend on Social Security, those in the bottom half of the distribution, aren’t living much longer. So you’re going to tell janitors to work until they’re 70 because lawyers are living longer than ever.

Still, I guess this is what it takes to get compromise, if by compromise you mean something the center-right and the hard right can agree on.posted by Joe Beese at 1:16 PM on November 10, 2010 [9 favorites]

I thought the budget balancing tool was stunningly easy, and it didn't even give me the option that I most wanted to see, namely "cut the HELL out of the military budget" as opposed to what it gave me, which was "cut a tiny itty bitty slice out of the military budget, and oh yeah pull troops from our ongoing wars".

Oh yeah. I wanted to see some real flexibility with regard to the military, crop subsidies, the drug war, and taxation, but even within the confines of the program I had no trouble getting the debt down to 40-something percent by 2018, well under the target of 60%. And that was with a few extra expenditures, like increasing mass transit funding to make up for cutting highway funds.

I say we don't have nearly enough. Keep the current brackets where they are, even bump them up a bit, but add more brackets starting at $450k, $600k, $750k, etc. adding an extra 2% or so per bracket until you hit 75% taxation. That bracket would come at approximately $3 million. I've got no problem taxing income over $3 million at confiscatory rates.

I think that's actually one of the problems with the current tax structure: it taxes the upper middle class and the extremely rich at the same rate. I can think of no good reason why this should be the case.posted by valkyryn at 1:20 PM on November 10, 2010 [43 favorites]

My prediction: Taxpayers get porked.

Please, please, please, please stop using this word as a general term for "Americans." It cheapens human lives into an abstract financial concept, and isn't even technically correct, as children and the poor do not pay taxes, but are certainly effected by policy decisions.

It's a loaded word used to spark a very specific emotion, and often clouds the discussion at hand.

I thought the budget balancing tool was stunningly easy, and it didn't even give me the option that I most wanted to see, namely "cut the HELL out of the military budget" as opposed to what it gave me, which was "cut a tiny itty bitty slice out of the military budget, and oh yeah pull troops from our ongoing wars".

Please, please, please, please stop using this word as a general term for "Americans."

I think in the context of a thread about American tax policy, that's a bit rich.posted by swift at 1:28 PM on November 10, 2010 [2 favorites]

as children and the poor do not pay taxes, but are certainly effected by policy decisions.

Umm... yes they do?

The poor pay payroll taxes unless they're unemployed. Payroll taxes currently account for a little more than a third of federal revenues, and as payroll taxes are at least partially capped, the poor pay a larger percentage of their income in payroll taxes than the rich. You heard me right: Social Security is actually a regressive tax.

Children may as well pay taxes, because their parents/guardians do, and every dollar spent on taxes is a dollar not available for spending on the kids.

Why is this a loaded word? What possible cloud could be created by using it?posted by valkyryn at 1:29 PM on November 10, 2010 [10 favorites]

Eliminate mortgage interest deduction????

That would cripple home sales. It effectively makes buying a house a lot more expensive, especially in the first few years of ownership when you're paying nearly 100% interest. I effectively get back 30% of my mortgage payments at the moment as a tax refund. That's a big f-ing deal.

I think the deduction never should have been added to the tax code in the first place, but now that it's in, it is going to be very, very painful to remove.posted by GuyZero at 1:32 PM on November 10, 2010 [1 favorite]

Hell yeah! More hookers and blow for wall street! Now only if those guys upstairs would share!

America's motto: "Land of the free home of the brave" "Fuck you I got mine!"posted by Ad hominem at 1:34 PM on November 10, 2010 [3 favorites]

Also, if they're going to cut taxes I don't get why the Dems don't propose raising the personal deduction amount (or whatever it's called) so that all tax cuts go to people at the bottom of the income chain.

In addition to being a hugely populist move, it would stimulate the economy a lot more than cutting taxes on the rich. The rich save & invest which is nice and all, but the poor spend their money which is what the US economy needs a lot more.posted by GuyZero at 1:35 PM on November 10, 2010 [4 favorites]

I've got no problem taxing income over $3 million at confiscatory rates.

Slight derail: I dislike the term 'confiscatory.' It's usually used by conservatives when they want to deride taxation, and if you think about it, it makes no sense. What makes a given level of taxation 'confiscatory?' Anything above zero involves the government literally confiscating money: "from Latin confiscat- ‘put away in a chest, consigned to the public treasury,’ from the verb confiscare, based on con- ‘together’ + fiscus ‘chest, treasury.’" There's a qualitative difference at 100% taxation, I guess, but at everything between 0% and 100% it's all a matter of degree.

Anyway, I completely agree about the need for several more levels of taxation, which should top out at very high rates indeed. We have a fair amount of data on the non-linear utility of money and we should put it to use.

I think the deduction never should have been added to the tax code in the first place, but now that it's in, it is going to be very, very painful to remove.

So it should be phased out slowly so that housing prices and rents can adjust. It should be phased out by capping the deduction and bringing the cap down, so it will affect only the wealthiest mortgage-holders at first and then slowly come down. Make the phase-out take about as long as the median occupancy time for a house. That way people have a reasonable time frame to switch to renting.posted by jedicus at 1:36 PM on November 10, 2010 [1 favorite]

Valkyryn, what you're proposing is that income tax return to the way it was for the entire postwar period before Reagan. I'm afraid that in today's political climate, if you call for that, you may as well wrap yourself in the Soviet flag and demand that private property be declared illegal and that everyone be forced to work on collective farms.posted by [expletive deleted] at 1:38 PM on November 10, 2010 [3 favorites]

I think the deduction never should have been added to the tax code in the first place, but now that it's in, it is going to be very, very painful to remove.

The brits used the early 90's financial crisis as an excuse to get rid of it, and well that certainly hasn't held them back. You fade it over time so it doesn't screw people like you.

I may be just slightly biased though as a high marginal tax rate renterposted by JPD at 1:38 PM on November 10, 2010

Also, if they're going to cut taxes I don't get why the Dems don't propose raising the personal deduction amount (or whatever it's called) so that all tax cuts go to people at the bottom of the income chain.

While we're at it we should raise the earned income credit and peg it to inflation. It's a much more efficient and effective method of raising effective wages for the poor than the minimum wage.posted by jedicus at 1:38 PM on November 10, 2010 [3 favorites]

Wait! They're talking about fixing a $1.2 trillion deficit and one of their solutions is to charge admission to the Smithsonian museum. Damn, they are serious!

Really, this is nothing but a plan to let all conservatives take a pinata whack at liberal issues.posted by JackFlash at 1:41 PM on November 10, 2010 [2 favorites]

jedicus - the point of this entire proposal is to simplify the tax code by eliminating things like the EIC. That allows marginal tax rates to fall while being revenue positive. You could argue for more and higher tax brackets in the context of this report though.posted by JPD at 1:41 PM on November 10, 2010

valkyryn, what you're proposing is that income tax return to the way it was for the entire postwar period before Reagan.

Yeah, Reagan with his top marginal tax rates of 70% in 1980 and 69.13% in 1981. And a top rate of 50% (15% higher than today's top rate) from 1982-1986.

So I say, yes, let's add a new top bracket that would make Reagan proud: somewhere between 50% and 70%. We can start it at a nice, marketing friendly amount like an even $1 million per individual, $2 million for married couples.posted by jedicus at 1:42 PM on November 10, 2010

the point of this entire proposal is to simplify the tax code by eliminating things like the EIC.

Ah, I didn't see the elimination of the EIC. Well, in that case we'll need to raise the floor on the lowest income bracket. It's not quite the same as the EIC, but it's close and fits with the simplified model.posted by jedicus at 1:43 PM on November 10, 2010 [1 favorite]

Well, in that case we'll need to raise the floor on the lowest income bracket. It's not quite the same as the EIC, but it's close and fits with the simplified model.

agree 100%. Of course this whole thing is a pipedream. Things like the mortgage deduction are electoral third rails, and all of the other loopholes are beloved by the guys sending in the re-election cash.posted by JPD at 1:46 PM on November 10, 2010

valkyryn: the current line is that if you taxed people who made more than 5 million a year at higher rates, they would just stop working. No, I'm not kidding.

75% is too excessive, though. I think current tax rates are okay, just add 40% from 1 million to 100 million and 50% above that. If you're making hundreds of millions of dollars per year, the only difference in your lifestyle will be how many priceless works of art you keep in your yacht galleries. Conversely, putting billions back into education and health care will make sure you have a literate and healthy population to employ and sell your products to.

But ever since Citizens vs United, money=speech, which means you don't have a voice anymore. 3% of the population can outspend you on election donations and propaganda, year after year, in order to continue having the tax code custom made for their further self-enrichment.posted by notion at 1:46 PM on November 10, 2010 [10 favorites]

So it should be phased out slowly so that housing prices and rents can adjust. It should be phased out by capping the deduction and bringing the cap down, so it will affect only the wealthiest mortgage-holders at first and then slowly come down. Make the phase-out take about as long as the median occupancy time for a house. That way people have a reasonable time frame to switch to renting.

Yes, this would make it a lot easier to deal with. The devil is in the details I suppose - some of these tax changes might take a decade to come fully into effect which then makes me wonder whether they'll come into effect at all.posted by GuyZero at 1:46 PM on November 10, 2010

They're talking about fixing a $1.2 trillion deficit and one of their solutions is to charge admission to the Smithsonian museum. Damn, they are serious!

You mean reducing the corporate tax rate from 35% to 26% won't be offset by defunding the Corporation for Public Broadcasting?posted by Joe Beese at 1:49 PM on November 10, 2010 [3 favorites]

Jedicus: the 1980 tax rate would have been set before Reagan, and both the top tax bracket and the number of brackets went steadily down during his administration, bottoming out in 1988 at 3 brackets from 15% to 28%. No wonder King George the First had to raise taxes: Reagan had put the federal government in a completely untenable fiscal position by slashing taxes on the wealthiest Americans.posted by [expletive deleted] at 1:52 PM on November 10, 2010 [1 favorite]

How about higher taxes for the rich? Or is that taboo?
posted by outlandishmarxist at 12:23 PM on November 10 [1 favorite +] [!]

Wait! They're talking about fixing a $1.2 trillion deficit and one of their solutions is to charge admission to the Smithsonian museum.

I was thinking that and the Corporation for Public Broadcasting cuts were to satisfy the Tea Partiers. I can't imagine those things are more than a few million dollars a year annually, so it's got to be more symbolic than anything.posted by electroboy at 2:02 PM on November 10, 2010 [1 favorite]

valkyryn: the current line is that if you taxed people who made more than 5 million a year at higher rates, they would just stop working.

I'm not convinced that's the case. I think the Randians who would make that argument are politically noisy but actually quite few in number. Rather, I think a lot of the resistance to raising taxes on the high end is predicated on the fact that the current top tax bracket really does hit way more people who are upper middle class than who are extremely rich. Under $400k-600K you're hitting a lot of doctors, lawyers, and small business owners who are all working hard for a living and whose gross income may be significantly higher than their taxable income due to business expenses. Heck, a friend of mine running a commission-based 1099 sales job runs through about $120k a year, of which she only personally sees about $40k. So she triggers AMT, but you wouldn't know it to look at her bank account. So raising the top bracket under the existing structure hits a bunch of people who are responsible for most of the job growth in the US, i.e. small business owners.

But add a bunch of brackets on the top end without raising taxes on those below, and you might really be able to get some traction.posted by valkyryn at 2:06 PM on November 10, 2010

It's going to be awesome watching the tapdancing the new blood is going to do to avoid losing the tax loopholes, and completely depressing to watch the party faithful believe it.

The irony will go to 11 in '11.posted by notion at 2:07 PM on November 10, 2010

the 1980 tax rate would have been set before Reagan, and both the top tax bracket and the number of brackets went steadily down during his administration, bottoming out in 1988 at 3 brackets from 15% to 28%.

Yeah, I know. I played it loose with the numbers to make a point.posted by jedicus at 2:16 PM on November 10, 2010

Can congress sell brownies outside Phish shows to tide us over till the check from China comes ?posted by Ad hominem at 2:23 PM on November 10, 2010 [1 favorite]

Neither EITC nor increasing the number / progressiveness of the tax brackets makes taxes meaningfully more complex. For EITC to work you just have the tax on income below $x negative. Arbitrarily complex brackets just mean that you look up the number in a table.

Some complexity of the tax code that I've run into comes from a) income from business / investment; it requires book-keeping for your costs / basis, depreciation etc. b) favoring kinds of income, like long-term vs short-term gains vs wages vs educational subsidies vs gifts and inheritance c) entities like corporations which have arcane rules about what's taxable to them vs owners d) tax deferment for public policy: retirement funds, education funds, estate planning gimmicks.

Some of those are acceptable trade-offs of complexity and social benefit. For example it would be nice if we were all grown-ups who could save for retirement without tax inducing us and the necessary thousands of pages of code avoiding it being used as an excessive loophole, but I don't think we are.

I got out all the IRS publications for my return one year (17: generic income tax, 970: education benefits, 590: retirement plans, 334: small business, 503: child care, 505: estimated tax, instructions of all the forms) and my head exploded.posted by a robot made out of meat at 2:25 PM on November 10, 2010

I got talking points with no citations re farm subsidies. You're talking about them as they stand, but that's not why farm set-asides (paying people not to grow) and whatnot were started during the New Deal. And what I'm looking for is not a list of libertarian, nor anti-Big Ag, talking points. That the tax code deductions favor the wealthy right now is not a reason for getting rid of deductions.

So yeah, I'm seriously asking a question, and you can seriously address it by giving me citations to serious sources, not fishing for favorites by preaching to a certain crowd.posted by raysmj at 2:26 PM on November 10, 2010

I was thinking that and the Corporation for Public Broadcasting cuts were to satisfy the Tea Partiers. I can't imagine those things are more than a few million dollars a year annually, so it's got to be more symbolic than anything.

According to the CPB website, their federal appropriation for FY2010 was $420,000,000.

Which works out to be 0.3% of the total deficit. Or something.

That's going to make a huge difference in balancing the budget. Yes, indeed.posted by hippybear at 2:27 PM on November 10, 2010 [1 favorite]

"I am very curious to see how the white, old, rural, male, Southerners (WORMS) that toted their oxygen tanks to the "Tea Party" rallies -- and railed against "big government" -- will react to the prospect of their federal umbilical cords being crimped? For all their bloviating, screaming and rudeness, these low information voters have no idea just how much that "big government" has done and still does for them."
— Norm Goldman

The big issue with "soak the rich", aside from the obvious political opposition by people who have a lot to lose, is that it increases revenue volatility. The high incomes that seem so tempting to tax are generally much more volatile than middle class incomes; they're typically tied closely to business cycles and the market.

A hyper-progressive system that funded the government mostly on the upper end of "the rich's" income would be almost like having the Treasury take a heavily-leveraged long position on the market (and not necessarily the market as a whole, but whatever sectors your high income-earners are most exposed to). A few-percent dip in the market (or those hot sectors) would decrease revenue by much more.

A revenue system built like that would require spending discipline that I don't see any evidence of. There's too much pressure to increase spending when times are good, so inevitably you'd have a crisis when the revenue suddenly isn't there.

I suppose you could cook up some system where the tax rates aren't constant but actually fluctuate depending on revenue, so that if total taxable income goes down the rates just go up to produce the same revenue ... but if you think Americans hate taxes now, I don't see a system with such an unpleasant casino-like aspect winning many friends.

Ideally, what we'd do is prioritize spending into different tiers, based on how critical it is to the functioning of our society. At the very bottom you'd have the "supercritical" tier, things like water/power/food distribution/sanitation, without which you'd have mass death. These you would fund using the most stable, broad-based revenue sources possible. And from there you'd move up, funding projects that are less time-sensitive with more volatile revenue. The result would be a less catastrophic degradation of services when revenue dips.

Of course, that's not going to happen; our political system seems hardwired for exactly the opposite; when times are good there's a Hungry-Hungry-Hippo-like clamor to utilize all available revenue (whether for spending or tax cuts), and then when revenue decreases we have tremendously ugly fights over what to cut. Since it seems unlikely that we'll be able to change that, I'm not sure that introducing more volatility into the revenue structure, no matter how philosophically satisfying it may be, is necessarily a good idea in the long run.posted by Kadin2048 at 2:37 PM on November 10, 2010 [2 favorites]

Or getting rid of deductions altogether. Are you asking for all subsidies and set-asides to end, given a Big Ag-USDA-Ag. committees iron triangle thing that won't die easily, or just asking to end them on general principle, with nothing to replace them? The problem with our government is interest-govt. collusion, which is exacerbated by a failure to reform interest group behavior and certain features of our system that were meant to lessen the effects of interest behavior but worsen it. The talk of promoting "monoculture" a la corn is not the fault of subsidies and set-asides per se, as far I can tell through what I've read over time. It's the same problem with every other type of program, including ones you probably like.posted by raysmj at 2:38 PM on November 10, 2010

>Here's my question: why only three tax brackets? We've already got six.
>I can think of no good reason why this should be the case.

Rich and poor alike can only vote once, but, in practice, those with the resources can spend as much as they have to influence other people's votes, and thereby multiply the power of their original votes.

So, yeah, additional tax brackets are rational, elegant, and not coming back anytime soon.posted by darth_tedious at 2:39 PM on November 10, 2010

Buried in a footnote on page 13 of the PowerPoint summary is the biggest laugh line:

The high incomes that seem so tempting to tax are generally much more volatile than middle class incomes; they're typically tied closely to business cycles and the market.

The news I've read about this most recent business cycle is that, despite their businesses collapsing around their ears, most Wall Street types have been paid record bonuses for the past two years running.

Maybe their pay SHOULD be tied to business cycles, but all recent evidence points to this not being the case.posted by hippybear at 2:46 PM on November 10, 2010 [1 favorite]

valkyryn: politically impossible means it doesn't benefit the rich. You probably cannot get 20 of your friends together, come up with a message, and then spend tens of millions of dollars to get the rest of the country to believe it. The top half percent of the country is sitting on billions in personal cash and on the boards of companies who are sitting on hundreds of billions more. They have the time and the power and the money to wage war over the airwaves to drown out any voice of reason.

This is why they don't argue on the issues, and instead lean on platitudes and pablum. They can't provide details, because they don't want to balance the budget. Many of them receive a lot of their income from the government. So they invent issues that are tangential and sensationalist: immigration, abortion, muslim paranoia, gay marriage. They are custom tailored to scare the white religious base that provides them with all of their political support.posted by notion at 2:48 PM on November 10, 2010 [3 favorites]

A revenue system built like that would require spending discipline that I don't see any evidence of. There's too much pressure to increase spending when times are good, so inevitably you'd have a crisis when the revenue suddenly isn't there.

Don't we already have this "spending discipline" problem anyway? I'd rather have this problem and more cash flow than not have this problem and be broke.posted by avianism at 2:50 PM on November 10, 2010

From the Committee for a Responsible Federal Budget: an interactive deficit balancing tool.

That was really fun. Thank you! I felt like Dave in the movie Dave where Dave is up late and Dave balances the budget and everyone's like "Good job, Dave"posted by Greg Nog at 2:55 PM on November 10, 2010 [5 favorites]

And what I'm looking for is not a list of libertarian, nor anti-Big Ag, talking points.

My reasons were not 'talking points.' I didn't get them from a politician or strategist. Heck, neither major party in the US is talking about eliminating farm subsidies as a 'talking point,' so I'm not sure where such points would even come from.

Anyway, only one of my reasons had anything to do with large agricultural companies. The rest apply independently of the recipient of the subsidy. Subsidies on cereal crops and tobacco harm people and animals regardless of who grows the crops. Subsidies are market distorting and hurt farmers in the developing world regardless of who receives them in the US. The same is true of monoculture, the emphasis on processed foods, the growth of water-intensive crops, and the nature of food aid.

You're talking about them as they stand, but that's not why farm set-asides (paying people not to grow) and whatnot were started during the New Deal.

It doesn't matter whether subsidies during the New Deal were a good idea. The point is what to do about them as they stand now. And to the extent the current system has anything in common with the system put in place during the New Deal, it must be justified in the face of the fact that vastly fewer people in the US work in agriculture, we are all better off, and a little thing called the Green Revolution has made food vastly, vastly cheaper even apart from subsidies. The arguments that justified subsidies during the Great Depression are no longer valid.

So yeah, I'm seriously asking a question, and you can seriously address it by giving me citations to serious sources

Okay. Here are some cites. During the early 20th century something like 30 percent of the American workforce farmed. Today it's about 2%. The difference is mostly due to dramatic increases of productivity.

Relative to income, the cost of food has declined substantially since the 1930s. "The cost of a half-gallon of milk fell from 39 minutes [of work for an average manufacturing worker] in 1919 to 16 minutes in 1950, 10 minutes in 1975 and 7 minutes in 1997....a 3-pound fryer chicken...fell from 2 hours 37 minutes [in 1919] to just 14 minutes [in 1997]." (source)

The extreme cheapness of food means that it no longer makes sense to subsidize food, or at least not unhealthy cereal crops. If anything we should subsidize fresh fruits and vegetables as purchased at the grocery store, which also means the subsidy will apply to food imported from developing countries rather than being protectionist.

I could go on but that's enough of a derail about a comparatively small part of the budget (albeit one with very little reason to continue existing).posted by jedicus at 3:00 PM on November 10, 2010 [12 favorites]

Why do subsidies necessarily lead to mono-culture? I don't get what that has to follow, but you keep telling me it does without citing any sources. As things stand now with Big Ag controlling things maybe so, but I've never read that before about subsidies programs generally speaking.

The citation does not tell me that subsidies program, generally speaking, led to fewer family farms. That's a gross oversimplification on its face.

And yeah, I'm hearing talking points re "cheapness of food," which I've heard in enviro docs re programs that started decades after set-aside and subsidy programs began (during the FDR years). The idea of subsidies wasn't to keep food cheap, initially, it was to keep farmers in business. So you're confusing cause and effect. Farm subsidies are not the problem per se, but the way they're operated and who controls them. That sort of thing infects all manner of federal programs.posted by raysmj at 3:07 PM on November 10, 2010

And yeah, when I hear corn I'm hearing echoes of anti-Big Ag books and corn/Food Inc. type books, etc. Subsidies per se didn't lead to the explosion of corn. That didn't happen 'til decades after subsidies and set-aside programs were created.posted by raysmj at 3:09 PM on November 10, 2010

According to the CPB website, their federal appropriation for FY2010 was $420,000,000. Which works out to be 0.3% of the total deficit. Or something.

Off by a factor of 10. It is 0.03% of the deficit -- three pennies out of each $100.posted by JackFlash at 3:11 PM on November 10, 2010 [4 favorites]

Don't we already have this "spending discipline" problem anyway? I'd rather have this problem and more cash flow than not have this problem and be broke.

The risk is that you end up funding critical services with revenue that's not guaranteed to be there next year, and you build a government, or society in general, that's dependent on services that you suddenly can't deliver. I tend to think that's worse than just not having the money in the first place.

It's like getting a huge bonus from work one year and using it to build a massive addition onto your house, one that you have to heat ... if you don't get that bonus again next year, and the pipes freeze, you're in trouble. Quite possibly worse than if you'd never gotten the bonus at all.

Without spending discipline, a volatile income stream can easily become a curse rather than a blessing.

I would rather have a government that provides a lower level of services but does so sustainably and indefinitely rather than one that giveth one year and taketh away the next. Perhaps there is a philosophical disagreement to be had there ("would you want to be rich for a year if you knew you'd have to lose it all?"), but I cannot see the other side of it in a way that makes me think it's a recipe for a place I'd like to live.posted by Kadin2048 at 3:24 PM on November 10, 2010

Why do subsidies necessarily lead to mono-culture?

Subsidies encourage farmers to grow a crop that they otherwise would not (otherwise what's the point?). If there are only a few crops that are heavily subsidized, then farmers will concentrate on those crops. As it happens, the really heavily subsidized crops in the US, such as corn, are also not identity protected. That means everybody's corn goes in the same bucket: no distinction made for quality or type. Thus, to get the most subsidy money, you need to produce the highest yield possible. This means everyone grows only a few high-yield strains. Result: monoculture.

The idea of subsidies wasn't to keep food cheap, initially, it was to keep farmers in business.

They no longer need the help because of mechanization, hybrid strains, genetic modification, and other productivity improvements. Agribusiness is plenty profitable; subsidies just make food cheap. I don't care whether subsidies were a good idea at one time. So was burning coal. Things have changed.

Subsidies per se didn't lead to the explosion of corn.

No, it was caused by the massive surplus of cheap fertilizer after the Second World War as factories that produced explosives switched to making fertilizer (chemically they are very similar). Corn needs a lot of fertilizer, so cheap fertilizer means corn becomes profitable. Corn subsidies have just enabled this to continue decades after it should have been wound down.posted by jedicus at 3:25 PM on November 10, 2010 [1 favorite]

Wow, they have proposals that don't kick in until 2050 and 2075? What?

Because social security, medcare and the earned income tax credit are "earmarks" now?

By the way, earmarks add nothing to the deficit, they only stipulate how money already allocated must be spent. So for example, the government might allocate $X billion for highways, an earmark might specify that a bridge be built in a congressional district. That would just move the decision making back to the executive branch administrators, not save any money.

Index the retirement age to longevity -- i.e., increase the retirement age to qualify for Social Security -- to age 69 by 2075.
…
In their first plan, called "The Zero Plan," they suggest reducing the tax brackets to three personal brackets and one corporate rate while eliminated all credits and deductions. Without any credits or deductions (including the EITC and mortgage interest deductions), the 3 tax rates would be 8, 14 and 23 percent.

Can they fuck poor people any harder (btw, poor people haven't seen the same increases in lifespan as rich people, so increasing their retirement age really screws 'em. As would ending the EITC)

The co-chairs suggest capping both government expenditures and revenue at 21% of GDP eventually.

This, of course, has nothing to do with the deficit, and is all about making sure private companies can continue to profit providing basic services. For example, if we did a national, single payer healthcare plan, it would save a ton of money. People would exchange paying insurance premiums with paying taxes. And on average they'd save a ton of money. But the government GDP share would go up simply because spending would be transferred from private companies to public institutions.

----

In their first plan, called "The Zero Plan," they suggest reducing the tax brackets to three personal brackets and one corporate rate while eliminated all credits and deductions. Without any credits or deductions (including the ETIC and mortgage interest deductions), the 3 tax rates would be 8, 14 and 23 percent.

Yes! I'd save $500 a year on accountants' fees!

Simplifying the tax code and getting rid of tons of deductions is a fantastic idea. Notice one thing they didn't include, though: taxing cap-gains as income when it comes from options paid as compensation. That's how billionare CEOs avoid paying a high tax rate. It's ridiculous.

What I would do is set it up so that if you sell one security and buy another, or keep it in a brokerage account, you wouldn't pay taxes on it, but any money you removed from an investment would be taxed like regular income.

Anyway, this is mostly a plan to balance the budget on the backs of the middle class (and poor), which is exactly what was expected from the panel.

If they had made a commission filled with liberals instead of "bi-partisan" people who love the rich, there would have been a different result.

It may be the case that this won't even pass their own panel.posted by delmoi at 3:26 PM on November 10, 2010 [2 favorites]

The idea of subsidies wasn't to keep food cheap, initially, it was to keep farmers in business.

The original farm subsidies (enacted during the great depression) paid people not to grow. The idea was to limit the supply of food, therefore keep prices up, and therefore farmers could make enough money selling their food.

During the depression, prices dropped so much that farmers had to harvest all their land, which lead to even more supply, and lower prices and so on.

At some point the government just said "Fuck it, we'll pay you enough in subsidies that it doesn't matter if you can make a profit on it or not" which caused prices to tank and we find ourselves in the situation we're in now, with corn so cheap people use it as kitty litter.posted by delmoi at 3:29 PM on November 10, 2010 [1 favorite]

valkyryn wrote: "Under $400k-600K you're hitting a lot of doctors, lawyers, and small business owners who are all working hard for a living and whose gross income may be significantly higher than their taxable income due to business expenses."

And, oddly, they pay income tax on the income they actually made, after deducting their business expenses. Weird how that works.posted by wierdo at 3:44 PM on November 10, 2010 [8 favorites]

Committees are something people create whenever they want to coordinate efforts involving some nontrivial number of other people. Believe it or not, there are actually even non-governmental committees! We've got neighborhood watch committees; film festival programming committees; writing workshop committees; all manner of random citizen committees that have nothing whatsoever to do with the dreaded Big Government. Committees coming out our ears everywhere you look. Committees are a technology we've used since practically the start of human history. Tribal councils, for example.

So, let's see. I live in a high-cost area, but make a reasonable income, and I'm raising two kids in a smaller single-story home in a less-posh part of town.

If the mortgage interest deduction goes away all at once for 2011, I'm on the hook for an extra $450 a month, because I'd previously used the deduction to get back enough at the end of the year to pay my property taxes.

However, thanks to the tax bracket changes, I'd be getting more than enough back in each paycheck to cover it (according to my rapid math.) So, I'm better off.

Meanwhile, someone who doesn't have a house will be bringing home more in their paycheck -- but not hit with the loss of the mortgage interest deduction. So, they're net better off.

Another someone with a paid-off house will be bringing home more in their paycheck -- but not hit with the loss of the mortgage interest deduction. So they are better off, too.

So, who loses in that scenario? The person who has no income, but has a house payment. That's limited to retirees who didn't manage to pay off their houses before they retired, and are doing so out of Social Security/pensions/savings, and to people living off of trust funds or other large cash stores. Of those two, the ones living off of large cash stores could avoid the problem by paying the house off outright, but the retirees won't have that option.

Or am I missing something?posted by davejay at 4:06 PM on November 10, 2010

I just realized that those two changes will give people more money to buy houses, while encouraging them to put down more equity, and avoid interest-only mortgages like the plague. That would actually be pretty damn great.posted by davejay at 4:08 PM on November 10, 2010

Do the wealthy really pay that much in mortgage interest?

Let's test this.

Married couple making $500,000 AGI before the mortgage + property tax deductions. No other deductions (charitable or otherwise). They own a $750,000 house with a $750,000 mortgage taken out in January 2005 at an interest rate of 6.5%. Property tax rate is 1%.

Under the "eliminate all tax expenditures" plan (the 8-14-23 with no deductions proposal) they would pay $108,636. So that's another $18,369 off what they're already saving with the mortgage + property tax deduction.

Thing is, though, if you're married filing jointly and you own a $170K home, you're barely getting any deduction, since your exemptions and standard deductible roughly are more than the amount in interest you're going to pay on a 6.5% mortgage. Even at 8% interest, you're probably looking at a couple hundred dollars, and under the new brackets you're going to save at least that much over what's there.

So, yeah, it's kinda good for the middle class, a windfall for the wealthy, and little to a negative effect on the poor (with the elimination of the EITC).

But at the same time it will also eliminate demand for houses where the mortgage deduction actually helps buyers. Seattle, San Francisco, New York, Boston, places where you're paying a ton on your mortgage, so the deductions cuts the cost of owning by 10% or more.

And that's the scary part. It will only psychologically affect housing prices in Oklahoma City, but it will push prices down 10% or more on the coasts, creating still more mortgage-related financial nightmares.

In fact, the more I read these plans, the more I see that this whole thing is a recipe for economic disaster. You're pushing a million people out of work, eliminating defense contractor welfare, eliminating R&D funding to upper middle class scientists and engineers, cutting services while cutting off charities at the knees with the end of charitable deductions....

And you're expecting with all this extra money in people's pockets they will immediately load up on American made goods, when what they'll do instead is buy a bigger TV and shove the rest in a mattress.

You pull this sort of austerity right now, and you will tack 3-5% onto unemployment within 12 months, pull housing prices down another 10% over whatever bottom they were supposed to hit one day, and generally drive the money into low-interest saving accounts in banks that refuse to loan out the money. Never mind Obama not getting re-elected, John Boehner would lose his seat to Tyler, the Hemp For Victory Party candidate who promises free weed and you can crash at his girlfriend's place but she's you know pregnant and it's my baby and all brah but you how pregnant chicks are with the hormones but the pregnant sex is AWESOME and you got a few bucks for gas because I need to get my girlfriend's car back to Dayton thanks man you want to smoke up?

And Congress will be filled with people even crazier than what's up there now. On the upside, the rent will no longer be too damn high, and weed will be legal, so I guess it works out.posted by dw at 4:12 PM on November 10, 2010 [5 favorites]

Did you guys read the actual deck? Limit mortgage deduction to exclude 2nd residences, home equity loans, and mortgages over $500,000 (emph. mine). I have to assume there would be a phase-out where the interest on the part under $500k would still be exempt, so even assumptions for people owning $750k properties (with zero down...?) are quite a ways off.

As a bonus, if they don't index that $500k for inflation, it's an easy way to slowly get rid of the deduction altogether.posted by 0xFCAF at 4:22 PM on November 10, 2010 [2 favorites]

Another thing... if you're changing the rules on federal student loans to not defer the interest, you've just cut the lower middle class off from college, unless you're willing to up the federal student grant programs, which they're not proposing. And this at a time when states are pushing more and more of the cost of education onto students. That's another recipe for long term disaster.

In fact, a lot of what their plan is can be summed up by cost-shifting. Pushing more of the poor into Medicaid, for example -- will they fund that, or will it be still another unfunded mandate for states that already have threadbare Medicaid programs from the skyrocketing costs alongside stagnant block grants?

Cost-shifting is just smoke and mirrors, and unlike the federal government, most states have to balance their budgets and live within their means, and many states have to deal with stringent anti-tax initiatives and constitutional amendments. Doing these programs at the federal level ultimately is more efficient than having 50 separate programs with 50 levels of managerial competence.posted by dw at 4:29 PM on November 10, 2010 [1 favorite]

From my understanding, the emphasis on growing corn and press for low food prices to the exclusion of everything else came during and after the early 1970s. The massive farm foreclosures, family farm shutdowns, came in the 1980s. It's not a generalized post-WWII thing. I was a high school kid when the family farm foreclosure crisis hit, but I was by no means unaware of it.posted by raysmj at 4:35 PM on November 10, 2010 [1 favorite]

There's too much pressure to increase spending when times are good, so inevitably you'd have a crisis when the revenue suddenly isn't there.

From my understanding, the emphasis on growing corn and press for low food prices to the exclusion of everything else came during and after the early 1970s.

This would be incorrect. The rise of corn in the US is directly traceable to the combination of F1 hybrids (from the 1930s) and cheap fertilizer (available after the Second World War).

The great turning point in the modern history of corn, which in turn marks a key turning point in the industrialization of our food, can be dated with some precision to the day in 1947 when the huge munitions plant at Muscle Shoals, Alabama, switched over from making explosives to making chemical fertilizer. After World War II, the government had found itself with a tremendous surplus of ammonium nitrate, the principal ingredient in the making of explosives. Ammonium nitrate also happens to be an excellent source of nitrogen for plants. Serious thought was given to spraying America’s forests with the surplus chemical, to help the timber industry. But agronomists in the Department of Agriculture had a better idea: spread the ammonium nitrate on farmland as fertilizer. The chemical fertilizer industry (along with that of pesticides, which are based on the poison gases developed for war) is the product of the government’s effort to convert its war machine to peacetime purposes....

F1 hybrid corn is the greediest of plants, consuming more fertilizer than any other crop. Though F1 hybrids were introduced in the 1930s, it wasn’t until they made the acquaintance of chemical fertilizers in the 1950s that corn yields exploded.

This is documented in Food, Inc. and any number of other sources. Hybrids and fertilizer created the massive corn glut, subsidies sustain it, and we consume it as corn syrup, animal feed, and ethanol.posted by jedicus at 4:48 PM on November 10, 2010 [1 favorite]

Note: I can remember people bitching about being paid not to grow soybeans when I was a kid, in rural Miss. Now, as then, the state does not lack for soybeans. It's not like people were going to grow tomatoes and whatnot on their land instead.posted by raysmj at 4:48 PM on November 10, 2010

Heck, a friend of mine running a commission-based 1099 sales job runs through about $120k a year, of which she only personally sees about $40k. So she triggers AMT, but you wouldn't know it to look at her bank account.

Er. I may be missing something, but if you're suggesting that her incoming is roughly $40K while her cash flow for the year is $120K, I'm not sure what it has to do with personal income taxes. Unless you're talking about eliminating things like business expense deductions as part of the simplification system.posted by verb at 4:52 PM on November 10, 2010

This isn't Lake Wobegon. You can't have everyone pay lower taxes and have the same tax revenue. If the rich pay less taxes, (all of these tax proposals have the rich licking their chops), then everyone else has to pay more. That is elementary arithmetic. Here's a quick rule of thumb. You don't have to waste time digging into the details. If the rich like it, it's bad for you.posted by JackFlash at 4:53 PM on November 10, 2010 [5 favorites]

So, who loses in that scenario?

1) Poor people (end of the earned income tax credit)
2) Poor old people (who will have to retire later, despite the fact that unlike the rich and middle class they don't enjoy longer lifespans -- this is basically going to eliminate retirement for everyone who doesn't live to 70)
3) Also military contractors, which is nice.

But at the same time it will also eliminate demand for houses where the mortgage deduction actually helps buyers. Seattle, San Francisco, New York, Boston, places where you're paying a ton on your mortgage, so the deductions cuts the cost of owning by 10% or more.

Why is it socially valuable to subsidize that crap anyway?

And you're expecting with all this extra money in people's pockets they will immediately load up on American made goods, when what they'll do instead is buy a bigger TV and shove the rest in a mattress.

That's not really the point of the deficit committee, which is ostensibly about "reducing the deficit" but actually making sure that when the deficit is reduced, the burden falls on on the poor and middle class instead of the rich.posted by delmoi at 5:31 PM on November 10, 2010

Heck, a friend of mine running a commission-based 1099 sales job runs through about $120k a year, of which she only personally sees about $40k.

I'm very, very skeptical of this anecdote and all similar anecdotes from small-business owners and freelancers. I find that, when pressed, the figures that get thrown out for income are gross business receipts, not personal income, and the figures that get thrown out for federal personal income taxes include anything that is subtracted from gross receipts: business expenses, mortgage payments, local taxes, and so on. Notably, this includes expenses that are tax-deductible.

The real complaint in these setups is that personal income is low compared to gross receipts, but that's not obviously a problem with federal taxes -- some businesses are more profitable than others, some are run more efficiently than others, some industries have better margins than others, and some businesses are just not profitable at all.

I'll bet money this is the case with your friend, since $80k in federal taxes for $120 in personal, taxable income is insane. She either needs to see a CPA, stat, or some of those numbers are way off.posted by Marty Marx at 5:44 PM on November 10, 2010 [2 favorites]

Man, that site sure limits you to preconceived options. I mean, I understand why, but it kinda sucks.

It also doesn't factor in things like considering investment in infrastructure as a long term investment instead of a one time payout. Maybe I'm wrong. But that's what it appeared to me.posted by symbioid at 5:52 PM on November 10, 2010

Wait! They're talking about fixing a $1.2 trillion deficit and one of their solutions is to charge admission to the Smithsonian museum. Damn, they are serious!

All of the Smithsonian facilities combined have had 24.4 million visits* in 2010 (through the end of September). There were 30 million visits in 2009, 25.2 million in 2008, 24.2 million in 2007, and 23.2 million in 2006.* See their note on "visits" vs. "visitors"; one person could go to three museums in one day, which would count as three visits.posted by kirkaracha at 6:01 PM on November 10, 2010

"Our country got into this deficit situation after we started running a surplus at the end of President Clinton's tenure. The deficit was fueled by major tax cuts in the Bush era and and the cost of wars not paid for through tax increases as is usual.

So we should look first at how the country can correct these sources of the increased deficits."

THANK YOU. Sorry this sounds so partisan, but really. Cutting the country's income while increasing its expenses is such a big part of what went wrong. (The other part is the economic situation.)posted by salvia at 6:35 PM on November 10, 2010

Food Inc. has that about the Muscle Shoals plant? One operated by the TVA dam? Original stress of TVA, besides competition for energy trusts, econ development of the region, was conservation and encouragement of the use of feritilizers. Created via the Muscle Shoals dam, before WWII.posted by raysmj at 6:37 PM on November 10, 2010

If the rich like it, it's bad for you.

Maybe, but there exists dead weight. It's possible for policies to be worse for everybody, and we likely have some.posted by a robot made out of meat at 6:42 PM on November 10, 2010

You can't have everyone pay lower taxes and have the same tax revenue.

So although I do not necessarily want to take this argument to the limits, the Laffer Curve shows that there are times where you can actually lower tax rates and get the same or more revenue. Conservatives tend to think we're way over on one side of the curve all the time while my personal belief is that the curve is pretty flat to the extent that its deviation from a straight line is impossible to measure. But at least in theory, yes, you can do that.posted by GuyZero at 6:56 PM on November 10, 2010 [1 favorite]

Food Inc. has that about the Muscle Shoals plant?

Sorry, I should have been more clear. Food Inc does discuss how the explosives industry shifted to fertilizer after the Second World War (page 47), but it was this Michael Pollan article, which was published in Smithsonian magazine, that I was quoting directly and that mentions the Muscle Shoals plant.posted by jedicus at 6:59 PM on November 10, 2010

I'll bet money this is the case with your friend, since $80k in federal taxes for $120 in personal, taxable income is insane. She either needs to see a CPA, stat, or some of those numbers are way off.

Then I didn't make myself clear. She sees about $120k in revenue--not sales, just commissions--and spends about $30k in various business-related expenses. Another $50k or so goes to taxes because she has to pay both self-employment taxes and triggers the AMT. Those are ballpark figures. Any of them could be off 10% in either direction, both because I don't have exact figures and because her income is pretty volatile to begin with. But note that once your gross income is high enough, deductions stop becoming available, and that level is lower than most people think.

I'm not specifically complaining that her taxes are too high--though she pays more in taxes than someone who just earns $90k--but that even allowing for business deductions, small business owners with high grosses but low net incomes are still hit by taxes more than is intuitive for someone not actually running a small business, i.e. plenty of people with relatively modest incomes pay a ton of taxes.

Of course, some of those taxes are self-employment taxes, which is really just making the self-employed bear all of their payroll taxes instead of having the government hide that portion of the payroll tax by never letting it hit your paycheck in the first place. Total payroll taxes are just over 12%, but only half of that actually shows up on your pay stub. I think the levels are fine the way they are, but this is just sneaky.posted by valkyryn at 7:13 PM on November 10, 2010

I may be missing something, but if you're suggesting that her incoming is roughly $40K while her cash flow for the year is $120K, I'm not sure what it has to do with personal income taxes.

Again, because of the AMT, in certain ways she is taxed as if she were making $120k, despite the fact that she spends tens of thousands of dollars a year in business expenses, which lower her personal income in ways that traditional employees don't have to deal with.posted by valkyryn at 7:15 PM on November 10, 2010

I've got one that will save billions.

Dissolve the Dept of Homeland Security and move the Coast Guard back to the Navy. Then tell the CIA and the FBI to play nice.

So although I do not necessarily want to take this argument to the limits, the Laffer Curve shows that there are times where you can actually lower tax rates and get the same or more revenue.

The Laffer Curve doesn't show that you can do that. It is a visualization of a thought experiment conducted by Dick Cheney, Donald Rumsfeld, two conservative economists, and a WSJ reporter.

Estimates of the optimal point on the curve range from 70% to 20%, yet many conservatives announce that even the ridiculously low end of that scale is still unacceptably high. Anyone who deploys The Laffer Curve in a discussion about US tax policies might as well hold up a napkin-sketch of a bell curve and announce that they've proven their point.posted by verb at 7:33 PM on November 10, 2010 [2 favorites]

The National Sustainable Agriculture Coalition supports set-asides and incentives for conservation. This translates into, People are paid not to grow. Sheesh.

A highly inefficient solution. Much better would be instituting a carbon tax, raising water costs for agriculture, eliminating subsidies, and instituting more labor protections for agricultural workers. Result: higher costs for farm inputs (water, fertilizer, fuel, labor), so less is grown, especially in areas where it shouldn't be in the first place (e.g., areas where water is scarce or a lot of fertilizer is needed). This will lead to food being more expensive, but that can be helped by shifting some of the subsidy to the grocery store.

We should promote conservation by taxing those who are bad rather than paying those who are good. Taxation either generates revenue or is revenue neutral because people stop misbehaving. But paying people to be good costs money forever.posted by jedicus at 7:44 PM on November 10, 2010

That's odd. I know a fellow who actually makes $120k and spends another $40k-$50k on business expenses and isn't subject to AMT, or so says his accountant. It must be very fact specific.posted by wierdo at 7:44 PM on November 10, 2010

Oh, I see what it is. If you are actually a small business owner, your business expenses can't trigger AMT because they're not a deduction, it's just less income that actually goes on your Schedule C.

An employee that has unreimbursed expenses, on the other hand, takes a deduction that can trigger AMT.posted by wierdo at 7:55 PM on November 10, 2010

but that even allowing for business deductions, small business owners with high grosses but low net incomes are still hit by taxes more than is intuitive for someone not actually running a small business

This is false. No one pays federal tax on gross income. They only pay on the net profit. If she has a net income of $90,000, there is no way she is paying $50K in taxes. Her SE tax would be a little less than $14,000. She then gets to deduct half of that from her income, so her adjusted gross would be around 83K (not even considering that as a self-employed person, 100% of her heath insurance premiums are deductible).

With an adjusted gross of $83,000 it is extremely unlikely that she would be subject to AMT. Her income tax after the standard deduction would be about $13,000 so her total tax with SE is $27,000 -- a far cry from $50K.

But let's just assume that she is subject to AMT. Then she would get the AMT deduction (for single persons) of $47K off of her adjusted gross of $83,000, leaving a taxable income of $36K. Her AMT tax would be 26% of that which is $9400 which is less than the ordinary income tax.

So no, your friend is pulling your leg. She's paying nowhere near $50K in taxes even after you throw in state tax. She's paying no more than $30K, and likely much less if you actually detail all of her deductions. Compared to a salaried employee, she is paying somewhat less than $7000 more in taxes due to SE for the privilege of being self-employed. Self-employed people normally take that into consideration when determining their billing rates.

The point of this exercise that that many people grossly over-estimate the amount of taxes they are paying and these misconceptions pollute the debate over taxation.posted by JackFlash at 8:11 PM on November 10, 2010 [2 favorites]

even allowing for business deductions, small business owners with high grosses but low net incomes are still hit by taxes more than is intuitive for someone not actually running a small business,

It isn't that they are not intuitive, they're mathematically impossible. If there were no deductions under the AMT, she'd only have an effective rate of 26%. Under the normal tax structure, her highest marginal rate would only be 28%, and she'd pay lower marginal rates on large portions of her income, putting her effective rate somewhere below 28%

50k in taxes on 120k of income is an effective rate of 66 and 2/3rds percent. It's just not possible.posted by Marty Marx at 8:55 PM on November 10, 2010

jedicus: OK, you disagree with them (and that's a serious organization, as far as I can tell, not backed by anyone dubious), but can we agree that there was no reason for anyone to go at me with a, "Surely you can't be serious," kind of vibe next time, even if you do get 71 favorites out of it? That was incredibly condescending, and doesn't make for rational conversation. (I'm not a fan of favoriting here for precisely this reason, but that's another matter entirely.)posted by raysmj at 9:18 PM on November 10, 2010

Math fail. Sorry, the original 80k on 120k is 66 and 2/3rds percent. The lower 50k is a lower but still impossible 41 and 2/3rds percent.posted by Marty Marx at 10:12 PM on November 10, 2010

raising water costs for agriculture

The federal government doesn't regulate that, except in certain federally protected areas. And it's more of an issue in some states than others, more so in California than, say, Alabama (which has crazy amount of water when compared to the user population and needs, but doesn't have as much farming going on as it did even 25-30 years ago).

Labor protections and such are also damn near politically impossible at this point, which brings us (firmly) back to the subject of this piece. Policymaking is about the art of the possible--not one of the things you talk about is politically possible, in today's environment, and certainly won't be when the GOP takes over the House. Set-asides (which I was thinking of when asking about paying to not grow food, and not direct subsidies) have been a policymaking tool since the New Deal. They are neither new, nor untested, and they don't get much in the way of objections from lawmakers.posted by raysmj at 10:22 PM on November 10, 2010

And Congress will be filled with people even crazier than what's up there now. On the upside, the rent will no longer be too damn high, and weed will be legal, so I guess it works out.

The "rent is too damn high" guy is the only real populist I saw running in the last election. He is smart enough to know how to get his message to the most people, and wise enough to be able to laugh at himself. Despite his odd demeanor, he made a lot more sense than anyone running on the Tea Party ticket. I'm not sure he'd ever get to be governor, but he sure fits the part of a mayor or representative.

Raysmj. Respectfully I think you should do more reading on the unintended impacts of the US ag subsidy regime - both in the US and abroad. They are a very bad thing - and it is something the ultra left, the middle left, and the middle right all agree on. The only reason why they can't be changed is because of the disproportionate power of the farm states in the Senate.

For serious data rich discussions of the issues that don't revolve around "Teh HFCS is people" sort of argument you should check out the AEI and Cato's website (gotta be a first on MeFi for that btw), and for a more balanced approach, although one that is fundamentally pro-farmer you should stroll through the home pages of the Ag. Econ departments at the Ag schools of big farm states. So good info out there.posted by JPD at 4:43 AM on November 11, 2010

but can we agree that there was no reason for anyone to go at me with a, "Surely you can't be serious," kind of vibe next time, even if you do get 71 favorites out of it?

That wasn't the vibe intended; sorry if I wasn't clear. I said "Are you seriously asking why farm subsidies in the US need to go away? Let me give you a few (not particularly libertarian) reasons." The intent was to clarify that you were asking in earnest (i.e. 'seriously') before getting too involved in a long discussion.

As for the favorites, I don't believe there's a way to opt out of receiving them. Furthermore, I did include quite a lot of reasons and citations to fact, and I'd like to think that had more to do with it than any low-content popular appeals.

That was incredibly condescending, and doesn't make for rational conversation.

As I said, it was not my intention to be condescending. And I think our conversation has been quite rational. The tone has been civil, and rational arguments supported by facts have been exchanged.

I never claimed that it did. States subsidize agriculture in various harmful ways as well, and letting water be artificially cheap even as they're running out of it is one of them. If the states won't fix it, then the federal government ought to. There are several constitutional ways it could do so.

Set-asides...have been a policymaking tool since the New Deal. They are neither new, nor untested, and they don't get much in the way of objections from lawmakers.

I didn't claim they were new or untested. I claimed they were no longer a good idea. The few good effects (e.g. conservation) would be better achieved in other ways, as explained. They don't get objections from lawmakers because the lawmakers are corrupted by special interests. Low-population farm states have disproportionate power in the Senate and Electoral College. The early primaries in caucuses in places like Iowa have disproportionate power over the presidential election. The agricultural lobby abuses the now-almost-mythical 'family farm' to engender public support for subsidy. And it gives a lot of money to campaigns.

And ultimately it's just not an issue most people care about because they don't mind cheap food, don't care too much about the environmental issues, don't mind protectionist policies that hurt developing world farmers, etc. So even a fair-minded lawmaker might not hear much about the issue.

Lawmakers don't object to a lot of things. That doesn't make them good ideas. See, for just a few examples, the War on Drugs and the policies of the TSA.posted by jedicus at 6:52 AM on November 11, 2010

Marty Marx wrote: "Math fail. Sorry, the original 80k on 120k is 66 and 2/3rds percent. The lower 50k is a lower but still impossible 41 and 2/3rds percent."

You're forgetting FICA. The effective tax rate still couldn't be 41 and 2/3rds percent, because you are either subject to AMT and its lower rate and generous exemption or you can deduct half of FICA from your income, thus reducing your AGI. It would be possible to contrive a scenario where one's total federal tax burden was higher than the "advertised" rate, but not that much higher.posted by wierdo at 10:12 AM on November 11, 2010

There is no report from the fiscal commission - "Here is the most important fact about the proposal released by the co-chairmen of the National Commission on Fiscal Responsibility and Reform: It is not the commission's report. And here is the second most important fact to remember: The commission itself does not have any actual power. So what we're looking at is a discussion draft of a proposal to balance the budget authored by two people who don't have a vote in either the House or the Senate... It's worth taking a moment to consider how we got here: The fiscal commission we have is not the fiscal commission we were supposed to have. The fiscal commission we were supposed to have was the brainchild of Kent Conrad and Judd Gregg, the two senior members of the Senate Budget Committee... Their proposal would have set up a commission dominated by members of Congress and able to fast-track its consensus recommendations through the congressional process -- no delays, no amendments. But that proposal was filibustered in the Senate, mainly by Republicans who worried it would end in tax increases. So the president stepped in and created a fiscal commission of his own."

The Simpson-Bowles plan for capping stuff - "If you really get into the guts of the Simpson-Bowles deficit plan, what you'll find are a lot of caps... In the long term, the savings come from a cap on health-care spending... There's also a cap on taxesThat's a bit odd, as there's no real reason a commission dedicated to reducing the budget deficit should be limiting the revenues we can bring in to reduce that deficit, but it's there nonetheless... And that's most of the plan. It's also the best way to think about the plan... But though the caps approach has come under some fire, I think it's basically the right way to discuss this -- and even to put it into action. It's very hard to say exactly what policies we'll need to follow in the coming years. Some things will save less money than we hope, and others will save more. Some programs will become more necessary than we realize them to be now, and others will fade in importance as the circumstances that birthed them recede further from view. We don't need to make all those decisions now, and we shouldn't lock all those changes into place now."

The deficit commission report - "It won't happen in real life. As a movie preview I judge this as 'good enough.' It basically declares that some major deductions have to be on the table and it gets us to the next step."

Brad DeLong's fiscal plan - "The most important development is simply that Republicans (and Democrats) support the potential for Obamacare to reduce the rate of growth of Medicare expenditures. That is the #1 issue in fiscal policy today. And it saddens me how infrequently it comes up, except to be attacked."

Medicare and the deficit - "The most clear-eyed view of the silliness of the deficit commission report comes from Kevin Drum, who points out that at heart it says much less about reducing the size of the deficit than it does about reducing the size of the government. The distinction is a crucial one, since the mathematics of the deficit are simple, and overwhelmingly a function of Medicare expenditures. "

Hard Truths - "It's true that I think we need to rein in spending on both Medicare and healthcare spending in general. Be amazed, conservatives! But there's a flip side to this: the American population is aging and medical care is getting more expensive. This is simply a fact, and it means that even if we slow the rate of healthcare inflation we're going to need more money for healthcare. You want Hard Truths? That's a hard truth. We need to rein in healthcare spending and we need to raise taxes to pay for the higher healthcare costs of an aging population. Anybody who's serious about addressing the long-term deficit needs to deal with this instead of indulging in fantasies."

The Last Word on Simpson-Bowles: What Kevin Drum Said - "To put this more succinctly: any serious long-term deficit plan will spend about 1% of its time on the discretionary budget, 1% on Social Security, and 98% on healthcare. Any proposal that doesn't maintain approximately that ratio shouldn't be considered serious. The Simpson-Bowles plan, conversely, goes into loving detail about cuts to the discretionary budget and Social Security but turns suddenly vague and cramped when it gets to Medicare. That's not serious."

How Joe Lieberman helped the Democrats lose the election - "The problem, of course, is that this meant the bill didn't begin delivering benefits until 2014. But it was always possible to add provisions that would begin earlier... But the most promising idea didn't. And it was Joe Lieberman's fault. Late in the negotiations over the public option, a group of five conservative Democrats and five more-liberal Democrats seemed near to an unexpectedly smart compromise: Allow adults over 55 to buy into Medicare."

Kitzhaber's second try - "arguably the most consequential race in the country for health issues has finally been called. John Kitzhaber (D), who was governor of Oregon from 1994 to 2002, has been elected to a third term"

The deficit commission's plan - "bold ideas in terms of new taxes — carbon taxes, wealth taxes, Tobin taxes, consumption taxes, you name it — are nowhere to be seen: as Jonathan Chait says, this is 'a plan that's tilted, overwhelmingly, toward Republican priorities'. Which means a large dash of wishful thinking, a bunch of tax cuts (!), and even a cap on the amount of tax revenues that the government can bring in"

The Bowles-Simpson Deficit Reduction Plan Doesn't Add Up - "Instead of starting with a plan about what the federal government should no longer do and then determining the savings from the smaller number of employees that would be needed to do what's left to be done, with limited exceptions the plan focuses on the reduced workforce but makes few assumptions, suggestions, or recommendations about what services the government should no longer provide."

The Hijacked Commission - "what the co-chairmen are proposing is a mixture of tax cuts and tax increases — tax cuts for the wealthy, tax increases for the middle class"

Looking at the deficit commission's tax plans - "Krugman isn't giving the whole picture either. One of the best parts of the chairmen's plan is the way in which it raises the tax rate on capital gains and dividends so that they're simply treated as ordinary income. The very wealthy, who often live off capital rather than labor, would definitely be hit hard."

The British Experiment - "if Mr Cameron's downsizing causes Britain's recovery to stall relative to America's, Mr Obama will have a ready example of the folly of fiscal discipline during recovery and the dangers of conservative government"

Make Us Thrifty, But Not Yet - "To pass big budget changes, and especially changes that will cause short-term pain to concentrated, organised interests (like pensioners) Congress must be driven by and allowed to blame a real economic urgency. And right now, there is no urgency. The 10-year Treasury yield currently sits at 2.6%. It hasn't been above 5% since 2007."

The Politics Of Debt - "the lesson from other countries seems to be that the best way to make politicians care about long-term problems is to collapse the long-term into the short-term. That is, have a crisis"

What Will The GOP Cut? - "Medicare beneficiaries are the very core of the GOP's political base at present; Medicaid beneficiaries decidedly are not."

How They Can Prove It - "Meaningful cuts to one of: 1) Social Security. 2) Medicare. 3) Defense. Anything else is just rearranging the deck chairs on the Titantic."

Will Medicaid Take The Hit? - "Since Sarah Palin reminds us so often that she has a child with a developmental disability, surely she will use her Mama Grizzly pulpit to educate the public about the dire economic, budgetary, and social costs that would result from cuts to Medicaid, right?"

Miller vs Murkowski - "A fantastic column from Anne Applebaum nails the Republican choice: between 'corrupt big spending Republicans' or the 'shallow, hypocritical radicalism' of the Tea Party. It's also a useful reminder of the magical realism of Palin: she ran the most socialist state in the country and yet campaigns as a small government libertarian whose followers stand on their own two feet. In Alaska, they don't: 'Taxpayers' money subsidizes everything from Alaska's roads and bridges to its myriad programs for Native Americans. Federal funding accounts for one-third of Alaskan jobs.' "

The drawbacks of the GOP's all-or-nothingism on health-care reform - "The health-care law that President Obama signed into law in March is similar to the law that Mitt Romney signed into law in Massachusetts, and similar to the plan that Sen. John Chafee (R-R.I.) wrote and many currently serving Republican senators co-sponsored in 1994. All three laws featured the same basic structure: An individual mandate, subsidies for low-income Americans, regulations stopping insurers from discriminating based on pre-existing conditions and other applicant characteristics, and exchange-like markets to make insurance products more accessible and competitive. The Wyden-Bennett bill also included these features. That legislation was sponsored by a Republican senator, and, at various times in its life, co-sponsored by many more."

If Texas dropped out of Medicaid - "simply trying to wash their hands of the problem by stripping Medicaid coverage from the poor — without providing a reasonable alternative — won't be the answer either. The uninsured poor will continue to get sick. They will continue to seek out health care. And many institutions — including state governments — will still end up paying for it... Texas already has the highest proportion of uninsured residents in the nation, at 27 percent. If the state dropped Medicaid, that would go up to 40 percent"

The Simpson-Bowles Breakthrough: Why We Need Obama - "President Obama doesn't take ownership at some point and actually lead these commissioners to a deal. They won't sign on the dotted line without him. The commissioners need to keep tweaking the details among themselves, but at the end of the day nothing gets done without presidential leadership. He can stay silent for a few more weeks, but at some point it might be his bluff that gets called."

Did the midterms kill Keynesianism? - "Politics is even more cyclical than macroeconomics, and what goes around in midterms tends to come around two years later. So long as an 'it’s the economy, stupid' message can win elections, politicians will continue to push fiscal policies aimed at fixing what’s broken."

Republican priorities on Obamacare - "Republicans and associated groups say they will take to roll back or repeal Obamacare. Every single one of the proposed measures either increases the cost of health care and the size of the federal deficit, or has no effect on them."

The GOP's Waterloo? - "David Frum insists that sooner or later conservatives will be forced to conclude that they should've cut a deal on Obamacare."

The Impact of Health Insurance Reform in Massachusetts - "The use of emergency rooms for routine care fell, as did hospital admissions for treating preventable conditions, and the proportion of uninsured among hospital inpatients (by 36%), while there was no increase in the growth of hospital costs."

Why bipartisan health-care reform has proven impossible - "As an addendum to the previous post, it's worth thinking about partisanship and health-care reform not in terms of President Obama, but in terms of presidential efforts over the last century or so. And that story has gone something like this: Democrats moved right every time they failed. And Republicans moved further right every time Democrats tried."posted by kliuless at 1:33 PM on November 13, 2010 [1 favorite]

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